Euro and Italian Budget Talking Points:
- Italian government bond yields soar, as investors demand more yield for Italian risk.
- Core Euro-Zone inflation misses expectations and falls further.
The DailyFX Q3 EURand USD Forecast s are available to download.
Italian Bond Yields a Proxy for EURUSD Sentiment
Italian government bond yields are jumping higher again – yields rise as prices fall – after the government announced a budget deficit target of 2.4% for the next three years, sharply higher than Finance Minister Tria’s option of 1.6%. While this is a preliminary draft, and likely to be rejected by the European Commission in October, the scene is set for further discussions over whether Italy will break its debt targets and if ratings agencies will downgrade the country, an action that would force borrowing costs ever higher. Italian 10-year government bonds currently yield 3.15% and are closing in on the recent four-and-a-half year high of 3.25%.
The latest Euro-Zone inflation release will also add to the downward move in EURUSD with the core reading falling to 0.9% from a prior month’s 1.1% and missing expectations of a 1.1% print. The headline figure confirmed expectations of 2.1%.
The daily chart shows EURUSD now trending below the 20-day moving average and nearing the 50-day average at 1.15940. Below here the double-dip low at 1.1508 provides support ahead of 1.1448 and the recent 14-month low at 1.1300.
EURUSD Daily Price Chart (January – September 28, 2018)
IG Client Sentiment Data show that retail investors are 41.4% net-long EURUSD – a bullish contrarian signal – but recent positional changes suggest that prices may soon trend lower.
Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.
What is your view on EURUSD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.com or via Twitter @nickcawley1.
